Tag: Quantitative easing

How to raise interest rates and lower unemployment at the same time

April 10, 2011 10:00 am by Financial Times

By Roger E. A. Farmer

In August of 2010, I argued on this Forum that the Fed should expand its policy of quantitative easing. By now the US is well into a programme that, by the end of June 2011, will have added $600bn to the Fed’s balance sheet. There is widespread discussion of what to do next.

Was QE successful? The facts suggest yes. There are signs of a nascent recovery in the US. Unemployment has fallen for the fourth month in a row and the economy is adding more than 200,000 jobs a month. Not enough to bring unemployment down anytime soon, but it’s a start. Core inflation, dangerously low just a few months ago, is beginning to pick up and there are signs that the US has avoided a Japan-style deflation trap.

Continue reading: “How to raise interest rates and lower unemployment at the same time”

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Posted in Economics, UK economy, US economy |

How to restore confidence in the US economy without inflating a new asset market bubble

November 15, 2010 3:38 pm by Financial Times

By Roger Farmer

Ben Bernanke, US Federal Reserve chairman, has announced that the Fed is about to go on a $600bn spending spree by buying $75bn of treasury bonds every month for eight months. Not all of the members of the Federal Reserve Open Market Committee agree that a second round of quantitative easing is a good idea. Thomas Hoenig of Kansas City, Jeffrey Lacker of Richmond and Charles Plosser of Philadelphia have expressed concerns that QE2 could lead to inflation through excessive monetary expansion and that it might inflate a new stock market bubble. They may be right.

I have argued in this Forum that more QE can create jobs and prevent a second Great Depression. But it matters how the policy is implemented. The Fed should buy stocks not bonds. And rather than commit to a fixed programme of stock purchases, the Fed should use its market power to stabilize swings in the stock market and smooth out bubbles and crashes.

Continue reading: “How to restore confidence in the US economy without inflating a new asset market bubble”

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Posted in Central banks, Economics, US economy |

Shankar Acharya Currency wars and Indian policy

November 2, 2010 12:37 pm by Shankar Acharya

Suddenly the esoteric world of international finance is resonating to the clash of currencies. On September 27, Brazil’s finance minister stated that an “international currency war” had erupted. In its issue of October 16, The Economist put “Currency wars” on its cover, with evocative imagery of an aerial dogfight between paper planes of currency notes from different countries.

As that issue pointed out, there are three separate but related battles going on. First, there is the old and serious problem of a more or less inflexible pegging of the Chinese yuan (aka renminbi) to the US dollar, contributing to the massive Chinese current account surpluses and huge international reserve holdings and correspondingly large and unsustainable deficits elsewhere.

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Posted in China, Currencies, Economics, India, Monetary policy |

We need more quantitative easing to prevent another Great Depression: Round 2

August 25, 2010 12:32 pm by Financial Times

Update: Read Prof Farmer’s response to readers’ comments

By Roger E. A. Farmer

There is a widespread perception that quantitative easing is synonymous with increasing the money supply. But it is more than that. In 2006, the Bank of England began to pay interest on the reserves of commercial banks held at the Bank. QE, in conjunction with the payment of interest on reserves, allows the Bank to influence the short term interest rate and at the same time, to influence the prices of long term assets. This new flexibility is the key to understanding how to prevent inflation without creating another Great Depression.

Continue reading: “We need more quantitative easing to prevent another Great Depression: Round 2″

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Posted in Central banks, Economics, Inflation, UK economy |

We need more quantitative easing to create jobs

August 18, 2010 11:32 am by Financial Times

Update: Read Prof Farmer’s response to readers’ comments

By Roger E. A Farmer

I argue in this piece that:

  • Quantitative easing should be expanded
  • Even if the Bank of England were to buy the entire UK national debt that this policy would not be inflationary
  • The global recovery is faltering and an expansionary policy is needed to encourage private investors to create jobs
  • Additional quantitative easing could save as much as £38.5bn a year in interest costs to the taxpayer

May 18, 2006 was an important day. It was the day when the Bank of England began to pay interest on reserves. In October 2008 the Fed followed suit. This monumental change in policy gave the Bank an important new tool in its arsenal. It allowed the Bank to influence the economy not just through expansion or contraction of the stock of money, but also through the composition of its balance sheet.

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Posted in Central banks |

Is now the time to experiment with negative interest rates?

July 8, 2010 5:52 pm by Financial Times

By Brendan Brown

There is a magic monetary wand out there which could accelerate economies along the road to prosperity out of the widespread destruction wrought by the global credit bubble.

This wand is not the creation of another monetary time-bomb labelled “quantitative easing”; rather the source of magic is an emergency conversion of banknotes.

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Posted in Economics, Fiscal policy, Keynesianism, Monetary policy |

Don’t give up on quantitative easing: We can have our cake and eat it too

October 16, 2009 12:37 pm by Financial Times

By Roger E. A. Farmer

According to a widely-held consensus view, the world is slowly emerging from the Great Recession of 2008. Growth in China is projected to top 8 per cent in 2009. Australia raised the interest rate on the Australian dollar last week and the US and UK economies are showing signs that unemployment growth has slowed even though the unemployment rates in both countries are very high. Sometime soon, perhaps in the spring of 2010, perhaps earlier, the Fed, the European Central Bank, and the Bank of England are likely to respond to the perceived global recovery by reducing the sizes of their balance sheets and raising interest rates on overnight loans.

Continue reading: “Don’t give up on quantitative easing: We can have our cake and eat it too”

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Posted in Capitalism, Central banks, Crisis, Economics, Inflation, Monetary policy |

Does monetary policy still work?

January 13, 2009 1:46 pm by Financial Times

By Stephen Grenville

With the US official interest rate now in effect zero, there is much talk of monetary policy “running out of ammunition” and “pushing on a string”. Has monetary policy become impotent in the US and Japan? Does a similar fate await the rest of us?

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Posted in Credit squeeze, Federal Reserve, Fiscal policy, Monetary policy |

How to conduct a quantitative easing

December 23, 2008 8:00 am by Financial Times

By Alistair Milne 

Central banks are worried about falling rather than rising prices. By early next year, it is possible that central banks’ target policy interest rates will all be reduced to their minimum possible level of zero. Does this mean that central banks will then have lost control over monetary policy and be unable to prevent a cumulative debt deflation?

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Posted in Federal Reserve, Monetary policy |

Quantitative easing: Lessons from Japan

December 17, 2008 6:30 pm by Financial Times

By John Richards

As the recession deepens, policy rates around the world are rapidly approaching zero and they cannot go any lower. Does that mean that central bankers have run out of ammunition? Not necessarily.

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Posted in Central banks, Federal Reserve, Recession |

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